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TMI Blog2015 (9) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuing the said objects will not be eligible for exemption in respect of any activity in the nature of trade, commerce of business. 3. The Learned CIT Appeals failed to appreciate that, first of all, the Appellant Trust's activities would fall strictly only under the first three limbs of Section 2(15), viz., Relief of the poor, Education and Medical relief and will not come under the limb, advancement of any other object of general public utility'. Secondly, the appellant trust is not carrying on any trade, commerce or business. The running of Women's Hostels and canteen etc., were only for the benefit of the beneficiaries and not meant for the use of the general public and was incidental to the Objects under the first three limbs of Section 2(15). 4. The Learned CIT Appeals erred in holding that the activities of the appellant trust are outside the purview of the meaning of 'relief of the poor' used in Section 2(15) of the Act on the ground that the main activity of the Trust was running of Working Women Hostel and Working Women Centre. 5.The Learned CIT Appeals erred in not appreciating that the activities of the appellant trust since inception had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral public utility" and not entitled for exemption u/s.11 of the Act. Against this, the assessee carried the matter in appeal before the CIT(Appeals). 5. On appeal, the CIT(Appeals) observed that though the assessee has form its objects, which includes relief to the poor, marginalized and exploited women living in difficult circumstances and children in distress especially the street children, child workers and children in slums, the assessee has undertaken the following activities during the year: Sl. No Nature of activity Income Expenditure Surplus 1. Local Contribution Account 87,61,830 1,25,01,567 -37,39,737 2. Foreign Contribution Account 50,29,018 76,80,361 -26,51,283 3. Balwadi 53,750 5,03,617 -4,49,867 4. Canteen 26,76,083 27,35,991 -59,908 5. CM's Noon Meal Programme 0 26,320 -26,320 6. Creche 1,77,667 1,33,398 44,269 7. Working Womens Hostels 35,68,975 21,37,289 41,31,686 8. Welfare of Street Children 53 10,65,411 -10,65,358 9. All Women Service Center 53,96,757 24,40,083 29,56,674 10. Family Counselling 1,80,354 7,97,473 -6,17,119 Total 2,58,44,488 3,00,21,451 -41,76,963 5.1. Further the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and canteen, which are totally commercial in nature and hence, the assessee was not considered as the one engaged in commercial activities and not charitable activities and confirmed the denial of exemption under sec.11 of the Act. Since, the assessee has already claimed cost of its business assets as application of income in the earlier years u/s.11 of the Act, he directed the AO to withdraw the depreciation, which was allowed on written down value of the fixed assets and to allow depreciation only on the assets acquired in the financial year 2008-09 and recompute the income of the assessee. Against this, the assessee is in appeal before us. 6. The ld. AR submitted that the assessee society's activities would fall strictly only under the first three limbs of Section 2(15), viz. relief of the poor, education and medical relief and not under the limb, "advancement of any other object of general public utility". The assessee society was not carrying on any trade, commerce or business. The CIT(A) erred in not appreciating that the activities of the Assessee-Society, right from inception, had been only the uplift of poor and destitute women and welfare of poor and orphaned child ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2(15) : "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." As per s. 2 of the Finance Act, 2008, the said provision was amended adding a 'proviso' w.e.f. 1st April, 2009 as follows : "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity." The Department has taken a stand that by virtue of the amendment as above, the assessee is not entitled to exemption u/s.11 of the Act. 8.1. The ld. AR submitted that, the idea and understanding of the Department with regard to the scope of amendment to sec.2(15) is thoroughly wrong and misconceived. There is no trade or business in the activities pursued by the assessee in running of working womens hostels, womens service centres and canteen will not take it outside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the ld. AR, to perform charity, income is inevitable and contended that the activities being pursued by the assessee may constitute a trade or business, if it is not applied for the purposes of charity. Contrary to this, the ld. DR submitted that though the object of the assessee is to carry on charitable activities, but it does not carry those charitable activities, and it was only carrying on running of working women hostels, women service centres and canteen in a commercial manner, which cannot be construed as charitable activity. In other words, it was contended by the ld. DR that the assessee carried on activities in a business oriented manner, it will definitely come within the fourth limb of the amended sec.2(15) of the Act, where the prohibition of activity in the nature of trade, commerce or business for any activity of rendering service or any other consideration, irrespective of the nature of the use or application or retention of the income of such activity is specified and hence, not entitled to any exemption. 8.4. To analyse the activities carried on by the assessee, we have to go through the nature of activities pursued by the assessee as enumerated in ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stands so, giving a purposive interpretation to the statute, it may have to be read and understood that the second limb of exclusion under cl. (b) in relation to the service rendered by the assessee, the terms "any trade, commerce or business" refers to the trade, commerce or business pursued by the recipient to whom the service is rendered (as there may be a situation involving in running of working womens hostel, womens service center and canteen. 8.6. Further, in similar circumstances, the co-ordinate Bench of the Tribunal in the case of Young Women's Christian Association of Madras v. JDIT in ITA No.823/Mds/2013 dated October 30, 2013 (62 SOT 65) has held as under : * "Generally speaking, the activities carried on by the assessee such as running orphanages, old age homes, rehabilitation centres, day care centres for elderly, vocational training to girls from slums, etc. cannot be considered as activities of medical relief or education or relief of the poor. * It is true that the activities carried on by the assessee take care of the poor people also. But those activities cannot be classified under any of the specific activities of relief of the poor; education or medica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee were stated to be relief of poor, medical relief and education, it was not possible to conclude that running of business in the form of IGH and WWH were business incidental to the carrying on of main objective of the assessee-trust. Therefore, the assessee is not protected by the provision stated in section 11 (4A), either." 8.7. Thus, as observed earlier, running of working womens hostel, womens service center and canteen is a commercial line which cannot be considered as charitable activity, so as to grant exemption u/s.11 of the Act. Accordingly, we are in agreement with the lower authorities and we deny the exemption under sec.11 of the Act. 8.8. Now, coming to the denial of depreciation on the assets purchased before the financial year 2008-09, we are of the opinion that the income of the assessee has to be computed in accordance with strict principles of accounting after denying exemption u/s.11 of the Act. If written down value of assets is already zero, for allowing depreciation, the same cannot be considered in the assessment year under consideration. Accordingly, the appeal of the assessee for the assessment year 2009-10 is dismissed. 9. Now, we take up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Form 10 filed by the assessee. The CIT(A) vide ITA No.103/08-09 dated 31.12.2009 dismissed the appeal by the assessee. The assessee then went to ITAT against the order of the CIT(A) which restored the entire issue to the file of the Assessing Officer to decide the case afresh vide ITA No.253/Mds/10 dated 24.03.2010. 11. In the meanwhile, the DIT(E) has condoned the delay in assessee's filing of Form No. 10, vide DIT(E) Nos.26(10)/08-09 dated 11.11.2009. 12. While passing order giving effect to the order of the Tribunal, the AO observed that there is violation of provisions of sec.11(2) of the Act and not granted exemption of its income. He brought shortfall of Rs. 3,35,36,030/- being the unspent income of the society while applying 85% of income, to tax, is as per law. However, on appeal, the CIT(Appeals), on this issue as in assessment year 2009-10, observed that the assessee is not a charitable society to grant exemption, as the predominant activities of the assessee is commercial in nature, the assessee cannot be construed as engaged in charitable activities. Accordingly, the CIT(A) directed the AO to withdraw the exemption granted to the assessee u/s.11 of the Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the children and women of the weaker sections of the community organizing sponsorship and scholarship programmes and other relevant means and methods wherever it is necessary. ix) To organize savings schemes and credit societies procure insurance policies and promote co-operative efforts to enhance their purchasing power and to improve their socioeconomic status of the communities. 13.1 The ld. AR submitted that the assessee filed its return of income for the assessment year 2006-07 on 30.10.2006 admitting income of Rs. NIL after claiming exemption u/s 11 of the Act. The Assessing Officer observed that the assessee had failed to apply the requisite 85% of the income for taxable purposes u/s. 11 (1) of the Act and Form No.10 for the accumulation of unspent income for future years, was not filed along with the return. The assessee filed Form No.10 subsequently along with an application to the Director of Income Tax (Exemptions) condoning the delay in filing Form No.10. The Assessing Officer held that no order of condonation by the DIT was received and completed the assessment holding that the assessee was not entitled for exemption u/s 11 of the Act. The assessee filed an appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation centres and working women's hostels etc., which is an on-going process. The construction of the buildings to achieve the charitable objects involved capital expenditure and other incidental expenditure necessary for the creation of new assets. The annual reports of the assessee society will bear out these facts. The decisions relied on by the CIT(A) are not applicable to the facts of the assessee's case. In those cases, the assessee had simply produced all the object clauses. In CIT v. MCT Muthiah Chettiar Family Trust cited supra, the Madras High Court observed that the assessee had verbatim repeated all the objects of the Trust as under: "(i) to establish and maintain and manage hospitals, clinics, laboratories and medical research centres and to provide the poor with medical relief, surgical advice and aid; (ii) to acquire or take over any hospitals, clinics, laboratories or research centres and to maintain and manage them; (iii) to establish, maintain and manage educational institutions or libraries for imparting technical knowledge or scientific knowledge, or knowledge in any subject or language; (iv) to award scholarships or stipends to students to enable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A). Moreover the AO, had relied on the amendments made to Section 2(15) by the Finance Act 2008 with effect from 01.04.2009. By this amendment the definition of charitable purpose was altered to exclude any activity in the nature of business where the purpose of the charitable institution was an object of general public utility. The CIT(A) therefore acted contrary to the provisions of Law as it stood for the assessment year 2006-07. The enhancement, it is submitted, is therefore not sustainable in Law. The ld. AR has brought to our notice that the C.I.T.(A) himself has not made any such enhancement for the assessment year 2008-09 while disposing of the appeal for that year. 14. On the other hand, the ld. DR relied on the order of the CIT(Appeals). Further, he relied on the order of the Tribunal in ITA Nos. 1464/Mds/2006, CO No.178/Mds/2006, 1426/Mds/2006 etc. in the case of Estate of M.M.Ispahani & Others, dated 20.7.2007, wherein the Tribunal followed its earlier order in the case of Estate of Maligal Merchant v. ADIT & Others in ITA Nos.1524 & 2312 to 2320/Mds/2004 dated 7.6.2005 and held as under: "Taking into consideration the entire conspectus of the facts, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income is to be accumulated or set apart, which shall in no case exceed ten years; 16. There is no dispute that it is mandate for sec.11 of the Act to specify the purpose and period for which accumulation is sought for. The above position was upheld by the Jurisdictional High Court in the case of CIT v. MCT Muthiah Chettiar Family Trust (supra), wherein it was held as under: "The trust is allowed to accumulate its income for a maximum period of ten years. The condition is that the trust should specify in the prescribed form the purpose for which the income is accumulated or set apart. It is not enough for the trustees to repeat the objects of the trust, but they must specify a particular purpose for which the income is being accumulated." Similar view was also expressed by the High Court of Calcutta in the case of DIT(E) Vs Singhania Charitable Trust (199 ITR I89)(Cal), wherein it was held as under: "Doubtless, it is not necessary that the assessee has to mention only one specific object. There can be setting apart and accumulation of income for more objects than one but whatever objects or purposes might be, assessee must specify in notice concrete nature of purposes for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss education to the weaker sections and marginalized sections of the people especially the women and children from Chennai City slums in the field of HIV / AIDS, Drug abuse, Alcohol. vii) To organize women into Madhar Sangams, self-help groups and domestic workers both in the organized and unorganized sectors, residential and non-residential and create public opinion and conduct social awareness programmes. viii) To impart education both formal and non-formal for the children and women of the weaker sections of the community organizing sponsorship and scholarship programmes and other relevant means and methods wherever it is necessary. ix) To organize savings schemes and credit societies procure insurance policies and promote co-operative efforts to enhance their purchasing power and to improve their socioeconomic status of the communities. 20. It is to be noted that section 11(1) of the Act grants exemption to the income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. There is no exhaustive definition of the words "property held under trust" in the Act; however, sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust and the property held under trust at the time of formation of the trust was not spelt out in the Memorandum of Association of the assessee. The running of working women's hostel, women's service center and canteen was not at all in existence at the time of formation of the trust so as to say that the business is property held under trust. Thus, the activities relating to running of working women's hostel, women's service center and canteen was not even in the contemplation of the Memorandum of Association on the basis of which the Society is formed and, therefore, could not have been settled upon trust. The business carried on behalf of a trust rather indicates a business which is not held in trust, than a business of the trust run by the assessee. In this case, the activities viz., running of working women's hostel, women's service center and canteen was carried on by the assessee for and on behalf of the trust and it was not business held under trust. Section 11(1) of the Act confers exemption from tax only where the property is itself held under trust or other legal obligation; it does not apply to cases where a trust or legal obligation is not crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that if the profits of the business carried on by the trust are utilized by the trust for the purposes of achieving the objectives of the trust, then the business should be considered to be incidental to the attainment of the objects of the trust as observed by the Supreme Court in the case of ACIT vs. Thanthi Trust (2001) 247 ITR 785 which is as under: "As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust ...........In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee". 26. Prima facie the above observation would appear to support the assessee's case in the sense that even if running of working women's hostel, women's service center and canteen is held not to constitute a business held under trust, but only as a business carried on by or on behalf of the trust, so long as the profits generated by it are applied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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